Business Law: Ch 14 Ownership and Risk of Loss in Sales.

Business Law: Ch 14

Ownership and Risk of Loss in Sales

Who May Transfer Ownership?• Only the true owner of goods may legally

transfer ownership of those goods• Exceptions:

1. Person’s authorized to do so may transfer another’s title

2. Buyers in a sale induced by the fraud of the seller may transfer better title than they have to an innocent third-party purchaser

Who May Transfer Ownership?• Exceptions:

3. Holders of negotiable documents of title may transfer better title than they have

4. Merchants who keep possession of goods they have sold may transfer better title then they have

Who May Transfer Ownership?• Authorized Persons–Person may sell what they do not own if the

owner has authorized then to do so• Salespeople• Auctioneers and Sheriffs under court

order or when empowered by statute, stolen or repossessed goods or foreclosed property

Who May Transfer Ownership?• Buyers in a Sale Induced Fraud– If an owner of goods is induced by fraud to sell

the goods, the transfer of title is voidable by the seller

– Upon discovering the fraud, the seller may cancel the contracts and recover the goods unless an innocent third party already has given value and acquired rights in them• Good Faith Purchaser – Innocent Third Party

Who May Transfer Ownership?• Buyers in a Sale Induced Fraud–Buyer with voidable title resulting from a

sale induced by fraud may transfer valid title to good faith purchaser– To act in good faith, the purchaser must not

have reason to suspect the person who has the voidable title–A person who buys stolen goods from a

thief receives possession, but no title

Who May Transfer Ownership?• Holders of Negotiable Documents of Title– In business, certain documents are used as

a substitute for title to goods•Warehouse receipt – issued by public

warehouses when goods are stored there• Bills of lading and Air bills – issued by

common carriers when goods are shipped by them

Who May Transfer Ownership?• Holders of Negotiable Documents of Title– In business, certain documents are used as a

substitute for title to goods• Documents may be negotiable or

nonnegotiable• Negotiable – Goods are to be delivered to the

bearer (Person in possession of the document, or to the order of a party named by the document)

Who May Transfer Ownership?• Holders of Negotiable Documents of Title

–Holder – Person deemed to have title to the goods»May transfer title of the goods by

merely transferring the document

Who May Transfer Ownership?• Merchants with Possession of Sold Goods– Buyers will allow the merchant seller to

temporarily retain possession of the goods after the sale• If the merchant resells and delivers these

goods to a good faith purchases, the latter receives good title• The merchant must replace the resold goods or

be liable to the original owner

Requirements for Ownership Transfer

• For ownership of goods to be transferred in a sale, the goods must be both existing and identical• Existing Goods – Physically in

existence and owned by the seller–Need not be in a fully assembled and

immediately deliverable condition

Requirement for Ownership Transfer

– Identical Goods – Existing goods that have been designated specifically as the subject matter of a particular sales contract• The identification of such goods may be

done by the buyer, the seller, both, or my mutually agreed-upon third party • The identified goods are marked, separated,

or in some way made distinct from similar goods


• Future Goods – Goods that are not both existing and identified• Any contract for the sale of future

goods is a contract to sell


• Exception to the process of identification–Fungible goods – Goods of

homogeneous or essentially identical nature• By nature or trade usage, each unit is

regarded as equal to every other unit


• When Does Ownership Transfer?– Common Situations

1. Seller delivers goods to their destination–Title passes when the goods are tendered at

their specified destination–Tender of Delivery – Means that the seller

places the proper goods are the buyers disposal and notifies the buyer so that delivery can be received


• When Does Ownership Transfer?– Common Situations

–The time, manner, and place for tender are determined by the agreement and the UCC–When additional work is required – title

does not pass until such work is completed


• When Does Ownership Transfer?–Common Situations

2. Seller ships, but does not deliver goods to their destination– Title transfers to the buyer at the time

and place of shipment (when possession is transferred to the carrier)


• When Does Ownership Transfer?–Common Situations

3. Seller delivers document of title4. Seller tenders goods at place of sale

Ch 13 Test

• Reminder that tomorrow, Tuesday, May 15, we will be taking the Ch 13 test. Please look at your handouts for the chapter.

14-1 Assessment

• Complete the 14-1 Assessment Questions on page 246.

• Complete the 14-1 Handout

• Turn in your answer with the handout

When Does Risk of Loss Transfer

• If Seller Ships Goods by Carrier– Seller is required to deliver goods to a particular

destination• Risk of loss passes to the buyer at the destination,

upon tender of delivery– To place the goods at the buyers disposal or to give

notice to the buyer that delivery can be received– Seller not required to deliver goods to a particular

destination• Risk of loss passes to the buyer when the goods are

delivered to the carrier


• Commercial buyers– FOB – means “free on board”• Seller agrees to delivery the goods no

further then destination–Title and risk of loss transfers at that

point


• Shipments from foreign countries– Seller quotes a CIF (cost, insurance, freight)– Seller contracts for adequate insurance and for

proper shipment• Adds these costs to the price or cost of the

goods– Risk of loss transfers to the buyer when the seller

delivers goods to the carrier


• If the goods are held by a bailee– Bailee – Temporary possession of another persons

goods, holding them in trust for a specified purpose– Risk of loss transfers to the buyer

1. When the buyer receives a negotiable document of title covering the goods (warehouse receipts)

2. When the bailee acknowledges the buyers rights to possession of the goods

3. After the buyer receives a non-negotiable document of title or other written directions to a bailee to deliver goods

When Does Insurable Interest Transfers

• Buyers obtain certain rights in goods at the time of their identification to a sales contract.– One right is Insurable Interest – Gives the buyer

the rights to buy insurance on the goods– Necessary because the buyer may lose money

should be goods be destroyed and the buyer cannot find then elsewhere.

When Does Insurable Interest Transfers

• In addition to the insurable interest, the buyer has the following rights:1. To inspect the identified goods at a reasonable

hour2. To compel delivery if the seller wrongfully

withholds delivery3. To collect damages from third persons who take

or injure the goods

Transfer of Rights and Risks in Specific Sales

• Cash-and-Carry Sales– The buyers in a sales contract is a consumer who

pays cash and takes immediate delivery, title passes to the buyer at the time of the transaction• Risk of loss passes upon the buyer’s receipt of the

goods from a merchant and on tender of goods by a casual seller


• Cash-and-Carry Sales• Seller may insist on payment in legal tender–Checks are commonly used but are not legal

tender.–Acceptance of checks by the seller is not

considered payment until the check is paid at the bank–Acceptance of the check does not affect the

risk of loss


• Sales on Credit– Sale that, by agreement of the parties, calls for

payment for the goods at a later date.– Ownership and risk of loss transfers even though

payment is delayed.


• COD Sales– COD – Collect on Delivery– Carrier collects the price and transportation charges

upon delivery and transmits this amount to the seller.

– If buyer does not pay, the goods are not delivered– Buyer loses right to inspect the goods before

payment– Ownership and risk of loss transfers as though there

was not provisions


• Sale or Return– Completed sale in which the buyer has an option

of returning the goods– When goods are delivered to a merchant buyer,

the ownership and risk of loss passes to the buyer upon delivery

– If the buyer returns the goods (original condition) within the fixed or a reasonable amount of time, ownership and risk of loss passes back to the seller

– Not the same as a return privilege granted to customers of retail stores


• Sale on Approval– Goods delivered to the buyer “on trial” or “on

satisfaction”– Ownership and risk of loss does not pass until the

prospective buyer approves the goods– When in possession of the goods, the prospective

buyer is liable for any damages to them caused by their negligence


• Sale of an Undivided Interest– A person sells a fractional interest in a single good

or in a number of goods that are to remain together

– Ownership and risk of loss pass to each buyer at the time of the sale of each undivided interest


• Auction– Public sale to the highest bidder– Auctioneer accepts the bid on behalf of the owner

of the goods– Ownership passes to the buyer at that time– Risk of loss passes when payment is received– Auction sales “With Reserve” – Auctioneer may

withdrawal the good at anytime before completion

– “Without Reserve” – Item must be sold to the highest bidder


• Bulk Transfer– Transfer of all or a major part of the goods of a

business in one unit at a time– UCC requires that notification to the sellers

creditors is made before the bulk transfer is made– The buyer is required to notify those creditors of

the forthcoming transfer of ownership and to pay their claims or to make other arrangement with them

14-2 Assessment and Handouts

• 14-2 Assessment on page 253• 14-2 Handout

Business Law: Ch 14 Ownership and Risk of Loss in Sales.

Documents

ownership of goods

transfer of title

goods documents

possession of goods

goods buyers

title slide

stolen goods

goods exceptions